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Peso GS Weekly: Take advantage on rallies for profit
Local yields continue to drop as rate cut expectations drive demand.
By Metrobank Local Currency Trading Department and Maria Christina Virtudazo
What happened last week
The local government securities (GS) market remained well supported as players positioned ahead of key risk events slated for last week.
On Tuesday, the Bureau of the Treasury (BTr) fully awarded PHP 30 billion for the reissuance of the 5-Year Fixed Rate Treasury Note (FXTN) 7-70 at an average of 5.968% and a high of 5.98%, or at the lower end of market indications. The strong auction demand with bids three times more than the offer size prompted the BTr to offer another PHP 10 billion via the tap facility.
Mid-week, data released showed January inflation was at 2.90%, slightly higher than the market consensus of 2.80%. Despite this, GS yields of medium- to long-term bonds continued to trend lower as expectations for a policy rate cut drove demand. Yields rallied by as much as 15 to 19 basis points (bps).
Toward the end of the week, slight profit-taking ensued ahead of the US Jobs data. The 4-Year Retail Treasury Bond 5-18 fell 7 bps to 5.855%. Meanwhile, the 9-Year FXTN 10-72 fell 12 bps to 6.055%.
BVAL Rates
| Tenor | 10-Feb-25 | 3-Feb-25 | Change |
|---|---|---|---|
| 1M | 5.03% | 5.01% | 0.02% |
| 3M | 5.12% | 5.19% | -0.07% |
| 6M | 5.51% | 5.49% | 0.02% |
| 1Y | 5.71% | 5.72% | -0.01% |
| 2Y | 5.77% | 5.78% | -0.01% |
| 3Y | 5.83% | 5.87% | -0.04% |
| 4Y | 5.87% | 5.93% | -0.06% |
| 5Y | 5.91% | 5.99% | -0.07% |
| 7Y | 5.99% | 6.09% | -0.09% |
| 10Y | 6.12% | 6.23% | -0.12% |
| 20Y | 6.35% | 6.38% | -0.03% |
| 25Y | 6.30% | 6.32% | -0.03% |
What can we expect
Volatility may be seen heading into the week, given the slate of risk events ahead. On Thursday, the Bangko Sentral ng Pilipinas is scheduled to have their first Monetary Board meeting of the year, where they are expected to cut key policy rates by 25 bps as inflation remains stable.
At current levels, we still advise clients to take advantage of the rallies to take profit, as the upcoming auctions may be utilized to scale in bonds at more favorable levels.
Top GS Picks
| Security | Yield to Maturity | Tenor (Years) | Maturity |
|---|---|---|---|
| RTB 5-13 | 5.65% | 0.49 | 12-Aug-25 |
| FXTN 7-62 | 5.73% | 1.00 | 14-Feb-26 |
| RTB 5-15 | 5.75% | 2.05 | 4-Mar-27 |
| RTB 5-17 | 5.82% | 3.52 | 22-Aug-28 |
| RTB 5-18 | 5.85% | 4.04 | 28-Feb-29 |
| FXTN 20-17 | 5.92% | 6.43 | 19-Jul-31 |
Note: Rates are indicative and subject to refresh.
(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)